emre yumlu Sudden market drops and rises can pose significant risks. Avoiding these risks requires being mindful of 4 common mistakes!
Opening a Short Position
If you’re trading with leverage, it might be healthier to close your position rather than opening one during highly volatile and fluctuating nights. If you’ve made a profit, reducing your risk through profit-taking can be beneficial.
Additionally, some traders tend to open short positions based on a downturn. While this can be correct at times and the market might fall further, during high volatility, you should avoid assuming short-term upward moves won’t occur. This can confuse investor psychology and lead to misdirection.
If you’re considering opening a short position, ensure you have solid reasons for doing so. Perform your fundamental and technical analysis, and unless there’s a clear signal that the price will continue to decline, opening a short position just because the price has dropped can be risky.
Otherwise, your chances of being caught in a wrong position are high, and the “it dropped, it will drop more” mentality can trap traders with sudden reverse movements. These types of trades are often made based on the wrong psychological motivations, which could result in losses.
Opening a Long Position with All Your Money
It’s well known that the best time to buy in the market is during a downturn, and the best time to sell is during a rise. However, you should be cautious when opening long positions with leveraged trading. While declines bring prices to more favorable levels, committing all your capital to these positions is highly risky. The “it’s dropped this much, now it will rebound” mentality often leads to losses.
The key is not to open a long position with all your capital and instead adopt a more controlled strategy. While opening a long position during a drop can be advantageous, it’s best to open the position gradually. This way, you can limit your losses if the price declines further. Gradually opening your position with a small portion of your total capital (such as one-tenth or one-eighth) allows you to take advantage if the market continues to drop.
Remember, there’s a concept called “the bottom of the bottom,” meaning it’s difficult to predict the lowest point in the market. Therefore, the best way to control risk is not to enter long positions with all your capital during a drop. Always keep some funds aside to support your position and be prepared for possible market moves.
Random Additions
Another mistake is making random additions; the best time to open a long position or buy in spot or futures trading is typically during downturns. However, making these purchases randomly and without a plan often leads to getting caught in unfavorable positions.
Instead, utilizing technical indicators can be a much healthier strategy. You don’t need detailed technical knowledge; you can make successful buys with basic indicators and analysis. For example, you could use indicators like the Smart Money Concept or simply draw a line to analyze support levels.
As an example, someone looking to open a long position or buy in spot for Ethereum could take advantage of previous low points and open a position at these levels. When prices reach support levels during a drop, they usually move upwards. By purchasing at these low points, you create a more solid strategy. If you buy simply with the mindset of “it’s dropped this much, now it will go up,” the price could unexpectedly drop further. In this case, rather than relying on luck, you should act based on a strategy supported by technical analysis.
Another key point is to always use support levels as a reference when making purchases. For example, if you made a purchase, set your next buying point close to another support level. Acting with the mindset of “if it drops a little more, I’ll buy there” can be riskier. Instead, by buying gradually, you minimize the risk of your position.
Additionally, when making purchases, use only a portion of your budget to maintain flexibility and allow more room to maneuver in the market.
In conclusion, you should not leave things to chance. By carefully reviewing technical indicators, fundamental analysis, and news flow, you can base your trading strategies on a solid foundation. This way, you can reduce the role of luck and make more successful trades.
Random Selling
Making emotional decisions when selling and buying usually leads to undesirable outcomes. If support levels are rapidly dropping, selling might seem logical, but selling immediately after a drop often leads to regret. So, where should we sell? When should we stop trading a particular cryptocurrency? How can we avoid this mistake?
If you’ve made a spot purchase in large cryptocurrencies (such as Ethereum), there’s usually no need to worry. However, if you’re trading futures or dealing with meme coins or cryptocurrencies with small market caps, you need to be more cautious. Even in spot trading, sometimes it’s necessary to accept a loss and exit the position. For this, technical indicators, especially support or trend lines, can be helpful.
For example, if you want to exit a cryptocurrency and are unsure whether the market will recover, selling when the support level breaks, i.e., when the price continues to decline, can be a wise move. This way, you can accept the loss and exit the position. Later, you can buy at lower support levels to average down your position.
If you’re trading futures, setting stop losses at these levels is very important. You can set an automatic sell order with a loss limit, such as 1% below the support levels. In this way, even if your $100 drops to $90, you’ll still have the opportunity to buy again at the lower support levels. This way, even if you experience small losses, you avoid large losses.
In conclusion, basing your buying and selling decisions on technical analysis, rather than emotions, is much healthier. Support, resistance, and trend lines can help you determine where to buy and sell. These methods allow you to make more informed and controlled decisions, eliminating emotional impulses.
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